Capital One Venture – the card NOT to travel with

Those of you who know me know that I do a fair bit of travel; in the last year and a half I flew at least 250,000 miles through Asia and Europe for work.

As part of being a regular traveler I wanted a credit card with travel benefits. After doing some research I settled on the Venture Card from Capital One primarily because of its decent interest rate and its competitive points system. With that said I still cannot recommend this as a travel card.

Why you ask? Well there is more to a travel credit card than the interest rate and points. To explain let me tell you about my trip to Russia.

First to be honest I did not explicitly tell any of my cards that I was going to Russia. That said when I know I am going to be a heavy traveler like I was in this time  of my life I will notify any cards (which I did in this case) I intend to use them while traveling that I will essentially be living on the road.

Though it is a good practice to notify your card companies every time you travel internationally calling them every 3 weeks isn’t a reasonable thing to do — and in my defense until this event it was never a problem.

The first part of the trip was in Belarus where almost no one took cards and I ended up paying for everything with cash – even Internet access. The second part of this trip we went to Moscow and the first time I tried to use the Venture card it was denied.

This is the same card I had previously used throughout the rest of Europe and Asia with no problem. Assuming it was an attempt to “protect” me from card fraud I calmly called support reaching what was apparently a Philippines call center where I was instructed that my card had been flagged as stolen by someone in Russia.

I explained this was the first use of the card in Russia and the suspected fraud was me. The agent informed me that despite this fact in the name of my best interests she would be canceling my credit card.

I of course protested; I was after all in another country for another month and had planed to use the points I earned to cover some of the costs of the trip and more importantly I had left my backup travel cards in Belarus. Without this card I was in essence dependent on the limited amount of cash I had left.

I explained my situation to the agent and was told not to worry that she would have a card to me at my home within 24 hours. I explained again that I was in Russia and that sending card to the states wouldn’t be of any use.

The agent then offered to mail me the card in Russia but couldn’t guarantee when it would arrive. I explained that this could take weeks – when I ship items via the fastest choice to Russia they typically get to the country within two days but don’t get delivered for three or more weeks. The agent responded that that this was the best they could offer but after some pushing I managed to get escalated to someone in the US where I hoped I might get a better answer.

It turned out that the US office was closed at that time but a few days later I did get a call back – unfortunately though it was clear this office at least understood the situation (the agent in Philippines office was very poorly trained) I was informed that since the other agent had already canceled my card there was nothing else they could do other than send me a replacement to my home in Seattle.

This is the core of why I wouldn’t recommend Capital One for a travel card — at least to an international traveler; when your traveling your credit card is your safety net, it is how you handle currency conversions, make sure you can feed yourself, have a place to stay and can handle the surprises you may encounter. More than the points, more than the interest rate this is what a travel card is. American Express built its reputation on being that card and when I have had issues in the past they have been there to help – Capital One on the other hand left me stranded.

Anyway I was so dissatisfied with Capital One’s handling of this when I got home I paid off the balance and did not activate the new card they sent.

Fast forward to over 6 months later and I get an email saying they have charged me the renewal fee for this card that in my mind was closed. I was a little disgusted by them charging me a renewal fee for an account they in-essence took from me when I needed it most but I was going to open a card anyway and decided to activate the card they had sent previously and pay the fee.

When I activated the card the automated system told me the card was ready for use but when I tried to use the card the first time it was denied. Frustrated I set the card aside until I had enough time to mess with their support again.

When I called to resolve this I was treated like someone who was avoiding paying a long standing balance and not someone who was trying to just resolve them miss-handling an issue so I just canceled the card.

Long story short — a good travel card has to have good customer service, they have to be your partner and look out for you and Capital One just doesn’t do that.

Though in my new role I don’t do much if any international travel I do a ton of domestic and have been using the Barclay Arrival card. I have had the occasion to talk to their customer service several times, each time they were professional and helpful. While I have not had a similar situation happen while using them as my primary travel card I suspect based on these experiences they would handle things differently.

Smart cards, PC/SC and Chrome

Smart cards have been around since 1974 and as a technology while they have expanded their capabilities they still work in very much the same way they did back then.

These cards expose a protocol represented in Application Data Units (APDUs), the devices themselves are typically connected to computers via smart card readers (either embedded or external) that communicate via PC/SC.

Shortly after PC/SC was defined a class interface for USB PC/SC devices was defined called CCID with devices that conform to this specification one does not need vendor specific drivers to interact with the PC/SC device.

Since Chrome 26 Google has supported an interface that allows plug-ins to interact with USB devices. While I have not looked at this interface in detail I do know that the Google Gnubby (aka FIDO U2F) uses this interface to interact with their devices. I also understand that the U2F devices are in simple JCOP cards with a Gnubby applet on them.

Based on the above it seems rational to believe a third-party (aka someone other than Google) should also be able to create a Chrome plug-in (which is nothing more than Javascript) that allows a web-page to interact with smart-cards.

This would when paired with a reasonable card-edge that supports secp256k1 enable Multi-signature Bitcoin transactions leveraging smart cards without the need for a “fat” client.

Smart cards, PIV, Bitcoin and secp256k1

I am thrilled to see Multi-sig (P2SH) getting adopted across Bitcoin industry it has the potential to significantly reduce the risks involve with storing Bitcoin online. With that said it is still dependent on software keys, which can be trivially stolen via malware and other attack vectors.

One way to address this risk is to move the keys off of the host and into a isolated computing environment like a smart card.
Hardware devices like the Trezor do this by creating a Bitcoin specific computing environment, which has a many benefits (like being able to enforce policy on the card and get trusted implementations of the whole Bitcoin stack) but they turn into single use devices as a result of this approach also.

An alternate or really complimentary approach would be to have a smart card (or USB token) that supports the same cryptography used in Bitcoin as well as other more commonly used algorithms.

The thing to understand about smart cards is that for the most part every one you see is a proprietary non-interoperable mess. This is a function card industry attempting fend off the race to the bottom by differentiating at the card protocol layer which resulted in devices that are based on “standards” yet are totally non-interoperable.

Where they do “interoperate” it is because middleware has been written to mask these cross-vendor idiosyncrasies. The largest case where this has not happened is in the PIV card-edge, which was defined by the US government as their standard for logical and physical access control.

This card-edge explicitly supports only two ECC curves ansip256r1 and ansip384r1. That said the mechanism the caller has to specify which curve to use is via numbers in IDs specified in SP800-78 that map to the algorithm to be used (see table 6-2 for those algorithms) one could squat on un-used IDs and have a card that could also support secp256k1. This means it is possible to extend a standard PIV applet to support storing and protecting Bitcoin keys also.

PIV has other limitations that make it not ideal for these scenarios, specifically the default ACL set for the cards are such that users can not create keys themselves. GoldKey a smart card vendor who’s product uses the PIV card-edge works around this by adjusting those ACLs and embedding an administrative key within their “driver” that enables key generation to happen when their driver is used.

The net of all of this is that one can reasonably create a smart card that supported all of the rich capabilities that are available to users of a PIV device and also support protecting Bitcoin wallet keys.

Two Factor Authentication with BitGo and Coinbase

Online wallets such as BitGo and Coinbase make Bitcoin much more approachable. That said neither seem to prioritize enabling two-factor authentication. This is surely an artifact of them trying to minimize account setup friction.

The net of this decision is that users have to know setting up two-factor authentication is a good idea and go spelunking for the setting in the account settings.

For technical users this maybe fine but for the less technical often times they either don’t know such an option even exists or don’t have the patience to find where this is done.

It might seem like an unfair criticism to suggest this is a bad approach since most banks and e-commerce sites don’t go make this experience much better but I think Bitcoin companies can and should do more.

If LinkedIn, Facebook and Twitter can remind us to improve our social profiles these high-tech financial institutions can remind us to improve our account safety.

UPDATE 07/28/14: Mike Belshe of BitGo points out that it may not be directly obvious but BitGo does actually require two factor authentication once you add a wallet to the account but since I did not attempt to create a wallet until the account was adequately secured I never observed this enforcement. This approach represents a decent trade-off for reduction of account sign-up friction and account security.

UPDATE 07/29/14: I should also point out that Coinbase does require you to use multi-factor if you use their vault feature. I personally think that they should still be encouraging non-vault users to use multi-factor though.

I would add that while these new wallet services are much easier to use than their predecessors I think there is still plenty of room for improvement and I am looking forward to seeing what they and the newer entrants to this space will bring to the table for users.

If you’re not familiar with the user experiences these two services check out these presentations that show you how to setup accounts with them:

Cupid and Understanding Your Exposure

In a past life I was responsible for a number of Windows Enterprise Networking technologies including the EAP implementation and was a contributor to EAP-TLS.

As a result when I saw the Heartbleed vulnerability announced I was painfully aware of what an attacker could do if they encountered a EAP-TLS implementation based on a vulnerable version of OpenSSL.

I have read a few articles this morning discussing the implications to those who use EAP-TLS and many of them get it wrong; the core issue being they don’t seem to understand the various actors in a EAP-TLS negotiation.

To understand how EAP works you need to understand the following terms:

Peer; this is the client to the wireless network. Be it your desktop, laptop or mobile phone (though EAPs use is not limited to these types of devices). Sometimes this will be called the supplicant.

Authenticator; this is your wireless router, when it comes to authenticator this entity delegates that responsibility to the authentication server (typically over RADIUS).

Authentication Server; this is the entity who is responsible for deciding if the peer can have access or not, it is also typically the EAP-Server but it can delegate this to another entity as in the case of complex wireless federation systems like.

EAP Server; this is the entity who actually implements the EAP protocol.

When a client connects to a router the router is configured to forward all requests to an Authentication Server. This results in a tunnel through the router to the authentication server.

In the most common case that authentication server implements the EAP protocol along with all of the various protocols (methods) that it supports.

In a Windows environment that server is called the Network Policy Server (NPS),  CISCO’s is called Cisco Secure Access Control Server (ACS), Juniper’s is called Steel Belted Radius (SBR) and the two most common Open Source distributions are OpenRADIUS and FreeRadius both of which use OpenSSL ([1], [2]).

The reason I wrote this is most of these articles talking about CUPID do so in such a way that it suggests the wireless router itself is the issue; while this is technically possible because there are routers out that also contain the authentication server and EAP Server these are not commonly used – especially with a TLS based EAP method. The main reason for this is that this quickly doesn’t scale, one of the largest reasons being that environments mature enough to take on the management overhead of a TLS based solution also probably have to provide service to a space larger than a single access point could cover.

There is another class of wireless access solution that leverages a “wireless controller” that manages multiple radios for this very reason. These solutions also often have built in RADIUS and EAP servers (and in my experience they are based on one of the above OpenSource solutions) but again this capability doesn’t appear to be used often with TLS based EAP methods since organizations often already have existing authentication infrastructure (Active Directory and NPS for example) that they leverage instead.

Long story short your probably only at risk of this if your using one of the Open Source Radius servers but since some vendors just repackage this code there are deployment models where you may be exposed its just not super likely. Here is a quick decision tree to help you understand your exposure:

Cupid Exposure

Bitcoin adoption in payments

If you talk to someone about using Bitcoin as a payment technology your surely going to hear about how governments are classifying it as an asset and not a currency and what the corresponding tax implications are.

While I think the current tax situation is unfortunate and hope this trend changes I don’t think this is the largest issue (just look at the sales online retailers are seeing despite this change as a proof point). In-fact there is so much slop in the payments system it might even be reasonable to cover the tax implications through the efficiency improvements Bitcoin can bring to the ecosystem.

I think the larger issues are in-fact that the incentive models for the incumbents are such that it’s not likely they will be the ones driving this change.

Just consider that we have been using technology known to be grossly insecure for card-present transactions for over twenty years and even though viable alternatives exist they have not been adopted.

That despite the massive shift to online sales these incumbents have not presented the market a payment solution designed to work well for the Internet.

The rational for not doing so makes sense; when you are the incumbent you resist change as it has potential to weaken your position and the costs of the security issues (as long as measurable) can simply be passed on to the merchant as long as the buyers keep buying.

Simply put they have little incentive to change.

Despite this change is on the horizon; as more and more goes online the relevance of card present transactions diminish (link to retail buying trends) the world also becomes a smaller place and these incumbents start to face competition from governments with their own payments infrastructure like in Singapore and other countries.

This means customers are starting to have choices and as such there is a prime opportunity to see a seismic shift in the way these incumbents look at their businesses.

This shift may provide the impetus to the incumbents to modernize and address these competitive risks. One way that modernization could manifest would be through their own adoption of a virtual currency like Bitcoin or acquire the new entrants with solutions in these space; for example:

  • Payment processors could go out and buy large private mining concerns as their role is in Bitcoin is essentially the same.
  • Card Networks or issuing banks might go out and buy online wallets like BitGo and Blockchain.
  • Acquiring banks could go and buy payment providers like CoinBase and BitPay.

Regardless of how such a migration happens the use of a virtual currency as a foundational payments technology has the potential to reduce the number of entities involved in each transaction making transactions more secure and cheaper. If embraced by the incumbents in the payment ecosystem this could even align with their logical view of the world.

Bitcoin and the credit card ecosystem

We use our credit cards every day yet most of us don’t really understand what happens when we swipe a credit card at a merchant. Did you know there are no less than six different players (above and beyond the consumer and the merchant) involved in a typical transaction?

Acquiring Banks – These are the retail banks that serve the merchant, you can think of them as the entity managing the bank account where deposits go for the merchant.

Payment Processors – These are actually the entities that really make credit cards work, they ensure everyone gets paid in accordance with the associated agreements. Some of the largest players here are FirstData, Heartland, Chase and Bank of America.

Issuing Banks – These are the banks that serve the consumer by providing them credit cards. They not only evangelize and sell the cards but own the customer relationship.

Service Providers – It used to be the only way to take credit cards was to work with your “acquiring bank” but now consultants handle this work for the banks.

Hardware Providers – Those clunky credit card terminals come from somewhere as to the point of sale terminals stationed in every retail establishment you visit. One of the largest is Verifon.

Credit Card Networks – This is Visa, Mastercard, American Express and Discover these guys don’t really clear transactions they instead establish the rules by which the system works and establish the technological standards the system uses.

Each one getting a piece of every transaction performed with that card, that cut can range from 2% to 3% of a transaction; if we assume the low end for a $100 transaction this looks something like this:

Merchant  $98.00
Issuing Bank  $1.50
Card Network  $0.15
Split between payment processor, Service Provider and Acquiring Bank  $0.35

This is of course before currency conversion fees, interest, card-fees, credit card rewards, charge backs and the numerous other variables at play in these transactions.

Some reports suggest in 2013 there were more than $4 trillion in these card-based transactions in the US alone. It’s also worth noting that in the US more than many other countries cards are being used for smaller and smaller transactions and this trend is likely to expand as cash becomes less convenient.

Startups like Square and Level-up are trying to disrupt these card-present transactions like Paypal has done for the card-not-present transactions and by doing so they are really going after a share of the that .35c that is currently split between the various players and the money the hardware providers get out of the merchant.

This is a great business but the sheer number of players involved in the system makes it hard to make ends meet. These players try to game the system by building additional products based purchasing behavior and batching transactions but the current system is so complicated with and has so many players its simply hard to get the slop out.

More over the standards set by the credit card networks are weak, the technologies these systems are based on are easily compromised and even their more secure counterparts based on chip-and-pin don’t live up to their security promises.

Then there is the question of usability of these systems which are far from optimum, we have all tried swiping our cards or entering the pin finding the readers unable to work with the cards or seen someone swipe the card the wrong way.

NFC has long been touted as the solution to some of these problems but despite being over 10 years old, has its own security issues, has hardly been deployed and at best is just a new hardware layer on the already overly complicated system.

One way to address these problems is to setup a separate system that runs along side this existing framework. This system would be designed to be more secure, easier to use and have fewer moving parts. Such a system if done right could get the slop out of the payments system, merchants could get paid quicker, keep more of their profits, consumers and merchants alike could experience less fraud and we could even have a more usable system.

Bitcoin has the potential to be the catalyst and foundation to make this happen; I don’t think we will see card-present transactions based on efficient models of bitcoin use in the near future but I do think it will happen.

If this approach can simply half the current cost structure of the payments that would put 1%-1.5% back in the merchants pockets, if along the way it reduces charge backs, currency conversion fees, and the other miscellaneous charges that infect this system it can foundationally change the way we look at commerce.

Bitcoin has this potential and I for one am excited to see what the next few years have in-store.

Proving assets under management is important but it is not an audit

Recently Bitstamp did a public display of assets under management and while I think its important they and others (like Kraken and the Vault of Satoshi) do this it does not an audit make.

Just look this video where Roger Ver attests things look good at Mt. Gox or what happened with Neo&Bee.

Don’t get me wrong what Bitstamp, Kraken and Vault of Satoshi are doing is great but they are not “audits” at least useful ones.

au-dit : an official inspection of an individual’s or organization’s accounts, typically by an independent body.

What kind of litmus test must be passed for me to consider something a useful “audit”?

  1. Does it look at evidence in balance? For example if someone has a million dollars in the bank but has signed first right debt agreements for two-million your still likely out of luck in the event they go under.
  1. Does it look at the complete picture? Its entirely possible an entity has all of its assets under its control and is debt free but the principals have unobstructed access to the funds or that the security and engineering practices are so lax that at any given moment a system can be compromised without detection.
  1. Does it measure practices to a standard? Audits are performed to some standard, for example the Sarbanes Oxley audits use a standard set of criteria that help assure financials are being tracked published accurately. While the WebTrust for CA audits ensures that certificate authorities are following common minimum standards for securing their operations.
  1. Is the standard relevant to the business in question? The risks in each system are different even if only subtly; there are many things in a WebTrust for CA audit that might be relevant to a bitcoin exchange but there are just as many things that are not the same is true for a SOX report. For an audit to be valuable it has to be one that was designed to prove something relevant.
  1. Is it performed by an independent third-party? Conflicts of interest are abound and when money is involved people often do the wrong thing. While the use of celebrity people from the community in a pinch is fine (and no disrespect intended) these individuals have a vested interest in the success of bitcoin.
  1. Is it performed by a qualified individual or group? Often times the “low bid” auditor wins but these are the same auditors who ask for stupid things.

So to-date has there been a single usfull bitcoin audit? I think its safe to say no. I would go so far to say that the practices of most Bitcoin entities are not actually audit-able because one has to design processes and procedures to ensure that they are and this slows down the “innovation train”.

In Coindesk post about Bitstamp’s “audit” Mike Hearn was quoted as saying “It’s a bit early to be setting standards yet” I would respond by asking the question if not now when? In my opinion this is exactly the right time to be tackling this problem.

These standards take time to be developed and have impacts on the way businesses operate and starting now not only ensures that the rapid growth in the Bitcoin ecosystem takes into consideration meeting some shared requirements on liquidity, solvency, audibility, transparency and security but by doing it now the requirements end-up being defined by the Bitcoin community instead of thrust upon it.

Regardless we need to be honest about what’s being shown when these events occur, they do little more than prove an entity has an amount of Bitcoin but nothing more.

Liquidity risk and management in Bitcoin

In finance, liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). 

This of course begs the question how liquid do you need to be? Surely the answer is at least partially tied to the volatility of the asset in question and what your individual exposure to the potential loss might be.

When it comes to Bitcoin, at least more so than with physical assets, the more liquid you are the more at risk you are in that liquidity also means that the corresponding wallet keys are easily accessible.  And the more accessible the corresponding keys are the more at risk they are.

One can manage these risks a number of ways the most simple being not keeping “all your eggs in one basket” by keeping only the funds that must be readily available “online” and then using schemes like P2SH and Shamir Secret Sharing to manage the associated keys.

The Bitcoin ecosystem has clearly embraced these things as concepts, at least in the abstract in that “cold wallet” and “hot wallet” are synonymous concepts in the ecosystem. With that said the strategies you use to mitigate risk when you hold $10,000 USD should be different than when you hold $100,000 USD and this is not something individuals have had to take responsibility for historically.

One of the most fundamental changes Bitcoin represents today is that you, the principal are now also principally responsible for keeping your funds safe. Despite this we are still faced with the problem people struggle to understand the risks they are exposed to on the digital realm.

This is why in Bitcoin’s short history we find case after case of individuals putting their assets in the hands of under funded practically anonymous entrepreneurs with no real experience in finance or computer security.

The recent influx of capitol into the Bitcoin ecosystem has the potential to change this but it will also change the nature of Bitcoin at least in-part. The technology has been painted as the Libertarian’s dream and in many respects it might be but for broad acceptance it needs to embrace some level of regulation if it’s to see adoption outside that niche.

Liquidity risk management is a great example; How much of their assets should an exchange keep online? How quickly do they need to settle transactions? Should they be required to have 100% of the funds associated with their internal ledgers? Should they keep their assets and liabilities private or make them public? Should they be mandated to have security and fraud-analytics in place so they can detect abuse and market manipulation? Should they be required to carry insurance to protect consumers from negligence?

It is my belief that requirements like the above would strengthen the Bitcoin ecosystem and make it a more viable means for the less technical and the financial ecosystem to adopt Bitcoin.